The correction in the TSX Index is finally giving investors an opportunity to buy some top-quality dividend stocks at reasonable prices for their self-directed TFSA retirement fund.
Let’s take a look at three companies that might be interesting picks after the recent market dip.
Bank of Montreal has a balanced revenue stream coming from commercial and personal banking, wealth management, and capital markets activities both in Canada and the United States.
The company’s Canadian residential mortgage exposure is lower than some of its peers, making the bank less likely to take a big hit if house prices go into a significant slump. Rising interest rates are starting to put pressure on Canadian families that have taken on too much debt in recent years, which could lead to an increase of mortgage defaults.
South of the border, Bank of Montreal has a strong business that’s benefitting from rising rates and tax cuts. As interest rates increase, banks generally see their net interest margins improve. The reduction in U.S. corporate tax rates is also providing a nice boost to profits. In addition, the strengthening of the U.S. dollar against the loonie gives earnings a nice boost when profits are converted to Canadian dollars.
At the time of writing, the stock is down to $87 per share from $108 just three months ago. This puts the price-to-earnings multiple at a reasonable 10.7 times. Investors who buy today can lock in a dividend yield of 4.6%. Bank of Montreal has paid a dividend every year since 1829.
Enbridge made good progress on its turnaround program in 2018, and the market might not be giving the stock the credit it deserves for the efforts.
Management found buyers for nearly $8 billion in non-core assets. The funds will be used to shore up the balance sheet and help finance the ongoing capital initiatives. Enbridge has more than $20 billion in secured capital projects on the go that should boost revenue and cash flow enough to support a 10% dividend increase in 2020. The company just raised the payout for 2019 by 10%.
The stock trades at $42 per share compared to a high of $65 in 2015, so the upside potential is significant once sentiment improves in the energy infrastructure segment. In the meantime, investors can pick up an annualized yield of 7% from the dividend.
CN trades at $98 per share compared to the 2018 high of $118. If you take a look at the 20-year chart for CN, big dips in the stock have turned out to be great buying opportunities.
CN says it could see record freight volumes in 2019, led by oil, fertilizers and consumer goods. The company is the only rail operator in North America that can offer its clients access to ports on three coasts.
CN has raised the dividend by a compound annual rate of 16% per year over the past two decades, and steady distribution growth should continue, supported by strong free cash flow generation. The board is also taking advantage of the dip in the share price to buy back stock, which is another way of rewarding shareholders.
The bottom line
Bank of Montreal, Enbridge, and CN pay reliable and growing dividends. The three stocks appear oversold today and should be solid picks for a buy-and-hold TFSA retirement portfolio.
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David Gardner owns shares of Canadian National Railway. The Motley Fool owns shares of Canadian National Railway. Fool contributor Andrew Walker owns shares of Enbridge. CN and Enbridge are recommendations of Stock Advisor Canada.